In an environment when mutual fund,insurance,broking and distribution businesses are under stress,Sam Ghosh,CEO,Reliance Capital tells Sandeep Singh that cost control is important to sustain the business in a challenging environment. He told that the company is in talks for another stake sale in Reliance General Insurance as it prepares to reduce debt in its run up to preparation for a banking license. Excerpts:
How do you see the pressures right now on the financial services business and how are you dealing with them?
For our businesses,if there is a downturn in the stock market it obviously affects but that has been going on for the last six months and regulations and political changes have also contributed to the whole environment. I dont see anything happening in the next 6-12 months. In todays environment you have to be very cost conscious and focus on niche areas,you cant be a generalist.
What has been the impact of regulations on all businesses?
Since 2007,regulatory changes have taken place across the world and regulators have become tougher. Be it from RBI to Sebi to Irda,this is to ensure more compliance and ensure that the customer is treated fairly. Some of the regulatory changes had an immediate impact on the industry such as the introduction of no-entry loads in mutual funds and in a similar manner reduction in commission on various insurance products.
What do you expect from the regulators which could help the industry?
Ultimately,distribution of products needs adequate compensation otherwise we cannot distribute the products. So for any product that you distribute,you need to pay distribution fee because though people expect customers to come to you,it is rarely (5-10 per cent) that customers come to you. Secondly,since the markets are down,while you cant do much,the regulators can help in pushing the industry into a certain way of functioning.
Do you mean that entry load should the there in some form?
They have already taken a small step by way of introducing Rs 100-150. I personally feel that you have to have some entry load otherwise you cant bring new distributors in the system and if you cant bring them you cant grow the pie.
What is the capital requirement for your companies going
Going forward,none of our businesses require money other than small amounts like Rs 100 crore in general insurance over the next 2-3 years. We are,in fact,in the process of reducing our debt.
Whats your preparation for the banking business?
We have focussed on reducing the debt at the level of Reliance Capital. We sold stakes in Reliance Life and Reliance Capital AMC. After repaying from the proceeds of Reliance Life stake,we have a total debt of around Rs 4,500 crore which will come down to around Rs 3,000 crore with the proceeds from AMC stake sale. Ultimately,our goal is to have a debt of around Rs 1,000 crore of debt on Reliance Capital besides a debt of Rs 15,000 crore on the commercial finance book. So when the final banking guidelines come out,we would like to apply for it. While the draft talked about Rs 500 crore capital,most likely we need to start with Rs 1,000 crore capital.
We have now reduced our debt,enough cash and very comfortable position to apply for a banking license.
Are you looking for another stake sale?
The other stake sale will happen in the general insurance company and we are in discussions for the same. The stake sale should be around 26 per cent,while we have not signed a term sheet as yet,we would like to close it soon.